Background on Sugar Policy Issues

Background on Sugar Policy Issues

Order Code RL33541 Background on Sugar Policy Issues Updated July 26, 2007 Remy Jurenas Specialist in Agricultural Policy Resources, Science, and Industry Division Background on Sugar Policy Issues Summary The sugar program, authorized by the 2002 farm bill (P.L. 107-171), is designed to protect the price received by growers of sugarcane and sugar beets, and by firms that process these crops into sugar. To accomplish this, the U.S. Department of Agriculture (USDA) makes loans available at mandated price levels to processors, limits the amount of sugar that processors can sell domestically, and restricts imports. In support of the program, sugar crop growers and processors stress the industry’s importance in providing jobs and income in rural areas. Food and beverage firms that use sugar argue that U.S. sugar policy imposes costs on consumers, and has led some food manufacturers to move jobs overseas where sugar is cheaper. In a major policy change, the 2002 farm bill reactivated sugar marketing allotments that limit the amount of domestically produced sugar that processors can sell. The level at which USDA sets the national sugar allotment quantity, in turn, has implications for sugar prices. Accordingly, sugar crop producers and processors on one side, and sugar users on the other, have sought to advance their interests by influencing the decisions that USDA makes on allotment and import quota levels. The issue of additional sugar imports “crowding out” domestic production was divisive when Congress debated the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) in 2005. Since then, attention on sugar trade issues has turned to the potential impact of free trade in sugar and high-fructose corn syrup (HFCS) — a substitute and cheaper sweetener — between the United States and Mexico, which takes effect on January 1, 2008. Unrestricted sugar imports from Mexico are projected to result in budget outlays (estimated at $1.4 billion over 10 years) as U.S. processors default on price support loans. This outlook conflicts with the current objective that the program operate at no cost and has become a key issue in crafting sugar provisions for the 2007 farm bill. The House Agriculture Committee-reported farm bill (H.R. 2419) would mandate a sugar-for-ethanol program intended to address any sugar surplus that arises as a result of imports. USDA would be required to purchase as much U.S.-produced sugar as necessary to maintain market prices above support levels. Purchased sugar would then be sold to bioenergy producers for processing into ethanol. The CCC would provide open-ended funding for this program. Other provisions would increase minimum guaranteed prices for raw cane and refined beet sugar by almost 3%, and tighten the rules that USDA must follow to implement marketing allotments and administer import quotas (i.e., remove discretionary authority). These provisions reflect recommendations made by sugar crop producers and processors. Food and beverage manufacturers that use sugar oppose these provisions, arguing that they “would take a sugar program from bad to worse,” would increase costs by $100 million annually to consumers, and would restrict the availability of sugar for food use in the domestic market. They have signaled their intent to offer amendments during House floor debate to strike some of the committee-reported provisions and/or to extend the current program. This report will be updated. Contents Recent Developments ..............................................1 History of and Background on the Sugar Program ........................1 Main Features of U.S. Sugar Policy....................................2 Price Support Loans ............................................3 Loan Rates...............................................3 Effective Support Levels ....................................3 Marketing Allotments ..........................................3 Allotments Required When Sugar Imports Are Below ‘Trigger’ Level........................................4 Allotments Suspended When Imports Exceed Trigger Level ........4 Exception to Suspending Allotments...........................6 FY2006 and FY2007 Allotment Announcements .................6 Import Quotas ................................................6 FY2006 Import Quota Decisions ..............................7 FY2007 Import Quota Decisions ..............................8 Sugar Imports, the Allotment Suspension Trigger Level, and DR-CAFTA.......................................8 Legislative Activity in the 109th Congress...............................9 House Amendment to FY2007 Agriculture Appropriations .........9 Senate Oversight Hearing ..................................10 Administration’s FY2007 Budget Proposal .....................10 Sugar Trade Issues................................................11 Sugar in Trade Agreement Negotiations...........................11 Key Interest Group Views ..................................12 Sugar in DR-CAFTA......................................12 Sugar Deal to Secure Votes.............................13 FTA Negotiations with Australia.............................14 Sugar in the Peru, Colombia, and Panama FTAs.................14 Sugar in WTO Negotiations.................................15 Sweetener Disputes with Mexico.................................16 2006 Sweetener Agreement .................................16 Reactions to Agreement................................18 Potential Impact......................................19 2007 Farm Bill Debate on the Sugar Program ...........................21 Sugar Program Options ........................................21 Factors That Will Affect the Debate ..........................22 Interest Group Positions ....................................22 USDA’s Farm Bill Proposal ................................24 Status of Sugar in 2007 Farm Bill Debate to Date ....................24 List of Figures Figure 1. Implementation of Sugar Marketing Allotments, FY2006 ..........5 Figure 2. U.S. Sugar Imports Compared to Allotment Suspension Trigger: Trade Agreement Commitments; FY2003-FY2006 Actual; and FY2007-FY2008 Estimates ...................................8 For additional information, see CRS Report RL34103, Sugar Policy and the 2007 Farm Bill, by Remy Jurenas. Sugar Policy Issues Recent Developments On July 26, 2007, the House Rules Committee reported out a rule (H.Res. 574; H.Rept. 110-261) that will be followed in floor debate on the 2007 farm bill (H.R. 2419). One amendment that will be permitted to be offered would strike all of the House farm bill’s sugar provisions (including the sugar-for-ethanol program) and extend current program authority through 2012. On July 19, 2007, the House Agriculture Committee completed consideration of its farm bill. The sugar provisions (reflecting recommendations made by the domestic sugar producers and processors) call for increasing sugar price support levels by almost 3%, revising marketing allotment authority to guarantee the domestic sector a minimum 85% share of the U.S. marketplace, and mandating that surplus sugar be purchased for resale for processing into ethanol as one way to meet the program’s no-cost objective. Sugar producers and processors support the measure, appreciative that current sugar policy was not “weakened.” Domestic manufacturers of food and beverage products that use sugar, represented by the Sweetener Users Association (SUA), responded that the proposed program “would take the U.S. sugar program from bad to worse,” increase costs to consumers, and result in sugar program costs of almost $2 billion during the farm bill’s five years. History of and Background on the Sugar Program Governments of every sugar-producing nation intervene to protect their domestic industry from fluctuating world market prices. Such intervention is necessary, it is argued, because both sugar cane and sugar beets must be processed soon after harvest using costly processing machinery. When farmers significantly reduce production because of low prices, a cane or beet processing plant typically shuts down, usually never to reopen. This close link between production and capital- intensive processing makes price stability important to industry survival. The United States has a long history of protection and support for its sugar industry. The Sugar Acts of 1934, 1937, and 1948 required the U.S. Department of Agriculture (USDA) to estimate domestic sugar consumption and divide this market by assigning quotas to U.S. growers and foreign countries. These acts also authorized payments to growers when needed as an incentive to limit production and levied excise taxes on sugar processed and refined in the United States. This type of sugar program expired in 1974. For the next seven years, the U.S. market was relatively open to foreign sugar imports, with mandatory price support provided only in 1977 and 1978, and discretionary support in 1979. Congress reinstated mandatory price support for sugar in the Agriculture and Food Act of 1981 and the Food Security Act CRS-2 of 1985. Subsequently, the 1990 farm bill, the 1993 budget reconciliation bill, and the 1996 and 2002 farm bills extended sugar program authority. The last bill extends it up through the 2007 crop year (i.e., most of FY2008). Even with price protection available to producers, the United States historically has not produced enough sugar to satisfy domestic demand and thus continues to be a net sugar importer. Prior to the early 1980s, domestic sugar growers supplied roughly

View Full Text

Details

  • File Type
    pdf
  • Upload Time
    -
  • Content Languages
    English
  • Upload User
    Anonymous/Not logged-in
  • File Pages
    29 Page
  • File Size
    -

Download

Channel Download Status
Express Download Enable

Copyright

We respect the copyrights and intellectual property rights of all users. All uploaded documents are either original works of the uploader or authorized works of the rightful owners.

  • Not to be reproduced or distributed without explicit permission.
  • Not used for commercial purposes outside of approved use cases.
  • Not used to infringe on the rights of the original creators.
  • If you believe any content infringes your copyright, please contact us immediately.

Support

For help with questions, suggestions, or problems, please contact us